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The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending
Author(s) -
CALEM PAUL,
COVAS FRANCISCO,
WU JASON
Publication year - 2013
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12037
Subject(s) - market liquidity , financial system , shock (circulatory) , business , secondary mortgage market , secondary market , monetary economics , mortgage insurance , economics , finance , medicine , casualty insurance , stock exchange , insurance policy
This paper explores the consequences of the collapse of the private‐label residential mortgage‐backed securities market in 2007 on banks’ originations of jumbo mortgages. We show that jumbo lending declined by more at banks that were more dependent on this market and were less well capitalized. In contrast, banks that had little dependence on this market and were well capitalized increased jumbo originations. These findings highlight how dependence on the secondary market may cause amplification of financial shocks, and the potential value of capital requirements that are higher during periods of economic growth in mitigating the amplification effects.

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